Hatch takes on Microsoft, again

The Utah senator accuses the software giant of stonewalling his investigation before announcing a new round of Microsoft hearings.

June 26, 19988:15 PM PDT

Microsoft critic and Senate Judiciary Committee chairman Orrin Hatch
(R-Utah) today turned up the heat on the software giant, accusing it of stonewalling his investigation and announcing a new round of hearings into its business practices.

In a statement on the Senate floor today, Hatch accused the Redmond,
Washington, software maker of engaging in "a game of hide the ball" and
deploying "a massive PR campaign grounded in spin control and misdirection"
in responding to his committee's criticisms of its business practices.

He also said his committee will hold further hearings on competition in the
digital age when Congress returns from its July recess. In particular, the hearings will examine the market for server software, a version of which Microsoft markets under the name BackOffice, as well as "practices and developments affecting access to, and transactions on, the Internet." He said he would announce dates and
witnesses to appear later.

Microsoft spokesman Jim Cullinan said Hatch's remarks were "unfortunate and
inaccurate," pointing out that competitors have themselves been spending "millions of dollars" on campaigns accusing Microsoft of anticompetitive conduct. "We think it's important for Microsoft to get the facts out there," he added.

To bolster claims that Microsoft "has continually sought to steer the
committee away from important but potentially damaging areas of inquiry,"
Hatch released a detailed report containing numerous statements the
software maker has made in the past. "At times, Microsoft has relied on
factually misleading or inaccurate statements to [divert the
investigation] on factually misleading or inaccurate statements," the
report added.

One example included statements Microsoft chairman and chief executive Bill Gates made
when he testified before the committee in early March about contracts
Microsoft signed with Internet content providers such as Disney and Time Warner.

Gates told the committee that, "There is nothing that restricts anybody who
has content relationships with us from developing sites that exploit"
competing browsers, adding that the content partners had "lots of ways" to
promote the content they designed for browsers such as Netscape Communications' Navigator.

The report said Gates's comments were "flatly contradicted by the evidence
unearthed by the Justice Department,"
which last month filed a second antitrust action against Microsoft. The
report claimed Gates had "glossed over" important details.

"For example, the Justice Department learned that, contrary to Mr. Gates's
testimony, Microsoft's contracts with the largest and most popular ICPs in
fact do require those ICPs to promote their Microsoft channel
exclusively, and do restrict the ICPs' abilities to deal with
'other browsers,'" the report said.

Similarly, the report took aim at comments Microsoft senior vice president
Bill Neukom made in a letter to Hatch concerning allegedly exclusive
partnerships with Internet service providers. Among other things, Neukom
argued, "the ISP is free at all times to distribute and promote any browser
software to any customers not referred by Microsoft." During testimony
before the Judiciary Committee, Gates repeated the claim.

"Microsoft's contracts include blanket prohibitions not limited to
customers referred by Microsoft" that sharply restrict the ISP's ability to
promote competing browsers, the report countered. It added that ISPs are
required to ensure that between 75 percent and 85 percent of the browsers it
distributes are Internet Explorer.

"It is inconceivable how licensing provisions that prevent ISPs from
promoting competing browsers, and actually require that ISPs ensure that
75 percent to 85 percent of its browser shipments are Microsoft's, are not
'exclusive' and directed precisely at 'locking out competing software.'"

The report listed other issues about which Microsoft allegedly made
misleading or inaccurate statements. They include:

 Claims that Microsoft had
withdrawn exclusive provisions in contracts with ISPs on a "worldwide basis," when in fact the exclusive requirements were still being enforced against the largest providers, including America Online, CompuServe, and Prodigy.

 Microsoft's denial that it holds a
monopoly in the market for personal computer operating systems, despite
research that indicates 90 percent of PCs run a version of Microsoft's
Windows.

 The software giant's repeated
assertion that it integrated its browser into Windows due to customer
demand rather than in an attempt to "leverage Windows," a strategy outlined
in a December 1996 email message sent by Microsoft senior vice president Jim Allchin.

 Gates's testimony that "it takes
about five seconds...to get the Netscape browser," when in fact it takes
more than two hours to download the product using a standard modem.

Microsoft spokesman Mark Murray said he was confident the company would disprove Hatch's allegations, many of which stemmed from the Justice Department's investigation. "Just as we saw this week in the appeals court ruling, the DOJ allegations aren't necessarily true or accurate," he added.

Murray disputed Hatch's contention that content providers are restricted from promoting Netscape software or online content, saying providers are free to develop separate sites that advertise competing browsers. He acknowledged, however, that certain sites such as Disney's are prevented from promoting browsers other than IE because they are listed on the Windows desktop.

On the issue of Microsoft's contracts with ISPs, Murray said he did not know whether the software giant required certain providers to ship Internet Explorer in ratios as high as 85 percent, as alleged in Hatch's report. He also claimed the report was "mixing apples and oranges" when it said that restrictions in place on AOL and other online service providers proved Gates misled the Senate Judiciary Committee in saying it had amended contracts on a "worldwide basis."

"Our business relationship with AOL is completely different than our limited cross-promotional agreements with ISPs," Murray explained, adding that Microsoft goes through considerable pains to customize its code for online service providers. He said he did not know whether the service providers are restricted from promoting Netscape, as Hatch and the Justice Department allege.

In any event, Murray said, "there was nothing wrong with either our ISP or ICP agreements," which Microsoft waived in order to "stop our competitors from being able to misrepresent them."

In his floor speech, Hatch also charged Microsoft supporters in the Senate
with using an appropriations bill to put pressure on assistant attorney
general Joel Klein, who heads up the Justice Department's antitrust division.

"I find it rather surprising that any one company would--rather than
seeking to prevail on the merits--instead have the hubris to try and use
the appropriations process to 'go on the offensive' and seek to restrain a
federal law enforcement agency that has an obligation to enforce the laws,"
Hatch said.

They also were supporting a rider to the bill criticizing the antitrust division for holding press conferences concerning its case against Microsoft. The measure for additional funding since has been killed.

"I trust that my colleagues in this chamber would have little difficulty in
seeing this as anything but an effort to interfere with an ongoing law
enforcement action," Hatch said.

"We were not involved directly or indirectly in this issue, but we were
aware that several senators raised concerns about the DOJ's activities in
using taxpayer money for PR issues," said Cullinan.

In his own floor speech, Gorton responded to Hatch's remarks by noting
that they came two days after a federal appeals court handed the Justice
Department a blistering defeat in one of its two pending cases against
Microsoft.

"The appeal court's panel took a long hard look at the very facts that Sen.
Hatch and the DOJ claim Microsoft is hiding, and ruled
that Microsoft's integration of Internet Explorer into Windows 95" did not
violate antitrust laws, he said. "The ruling is significant because it covers the same issue that is the central focus of the Justice Department's current case against Microsoft."

He called on both the Justice Department and the Judiciary Committee to
abandon the "unsuccessful and wrongly directed crusade against the
advancement of American technology."

Gorton and Sen. Patty Murray,
who both represent Washington state, have been vocal supporters of
Microsoft in its antitrust battle with the Justice Department. A senator in
his first term, Faircloth also recently has defended the software giant,
as have a number of other legislators, though to a lesser extent.

Hatch clearly has been the most vocal critic of Microsoft on Capitol Hill.
He represents Utah, which is home to some of Microsoft's fiercest
competitors, including Caldera, which
has brought its own private antitrust suit against the software giant, and
Novell.